Deck 5: Lbo Analysis

Question 1

Calculate the total goodwill for a pro forma balance sheet given the following details.

Details:
Equity purchase price: $2,000
Book value: $1,700
Existing goodwill: $100

A)$100
B)$300
C)$200
D)$400

Answer 1

$400

Question 2

Given the following information, calculate the cash available for debt repayment when building a post-LBO model.

Details:
Cash flow from investing activities: $30.0
EBIT: $65
Cash flow from operating activities: $120.0
D&A: $35

A)$100.0
B)$30.0
C)$90.0
D)$150.0

Answer 2

$90.0

Question 3

In a post-LBO model, where are the debt repayment amounts linked to?

A)Investing activities on the cash flow statement
B)Financing activities on the cash flow statement
C)Income statement
D)Long-term debt on the balance sheet

Answer 3

B

Question 4

Given the following information, calculate the cash available for optional debt repayment.

Details:
Cash flow from investing activities: $50.0
Cash flow from operating activities: $125.0
Total mandatory debt repayment: $30.0
Cash from balance sheet: $20.0

A)$65.0
B)$165.0
C) $45
D)$20.0

Question 5

Given the following information, what is the total amount that has been drawn from the revolver?

Details:
Revolver: $100.0m
Term: 3 years
Annual commitment fee: 30 bps
Cash available for optional debt repayment:
Year 1: $40.0m
Year 2: $35.0m
Year 3: $32.0m

A)$100.0m
B)$30.0m
C)$107.0m
D)Revolver remains undrawn

Question 6

In a pre-LBO model, what is the new line item "financing fees" under?

A)Long-term liabilities
B)Long-term assets
C)Short-term liabilities
D)Short-term assets

Question 7

In which of these scenarios is a revolver draw necessary?

A)When cash available for optional debt repayment is positive
B)When cash available for optional debt repayment is negative
C)When cash available on the balance sheet is zero
D)When there is an increase in net working capital

Question 8

When building a debt schedule, what are interest rates typically based on for floating-rate debt instruments?

A)Federal funds rate
B)3 year treasury yields
C)Required rate of return
D)LIBOR

Question 9

Which of the following are sources of funds? I.Term loan
II)Repayment of term loan
III)Purchase of equity
IV)Cash on hand

A)I only
B)I and IV
C)I and II
D)All are sources of funds

Question 10

In an LBO model, which scenario is considered the most conservative?

A)Management case
B)Base case
C)Sponsor case
D)Downside case

Question 11

Which of the following do/does not require a set amortization schedule?

A)Revolving credit facility
B)Term loan A
C)Term loan B
D)Senior notes

Question 12

Under operating activities on a cash flow statement, amortization of financing fees is linked from the:

A)CIM
B)Balance sheet
C)Income statement
D)Management case

Question 13

When preparing a pre-LBO model, the historical income statement is completed until what point?

A)Net income
B)Operating expenses
C)Interest expenses
D)EBIT

Question 14

Use the average interest expense approach to calculate the annual interest expense given the following details.

Details:
Beginning TLB: $300.0
Ending TLB: $250.0
Interest rate: 4%

A)$11.0m
B)$12.0m
C)$10.0m
D)$9.0m

Question 15

In a pre-LBO model, net income on the first line of the cash flow statement is initially:

A)Inflated
B)Understated
C)Correct
D)Deflated

Question 16

What is needed in order to complete the pro forma income statement from EBIT to net income?

A)Balance sheet
B)Debt schedule
C)CIM
D)LIBOR curve

Question 17

Calculate the interest rate for a revolving credit facility in 2014 given the following information.

Details:

Pricing spread: 350 bps

A)7.85%
B)4.35%
C)0.85%
D)3.5%

Question 18

Calculate implied enterprise value given the following details.

Details:
Offer price per share: $20.0
Fully diluted shares outstanding: 100
Total debt: $200.0
Cash: $100.0

A)$2,000
B)$1,900
C)$2,100
D)$1,700

Question 19

In an LBO, financing fees are an):

A)Deferred asset
B)Asset
C)Deferred expense
D)Current liability

Question 20

The ending cash balance on the cash flow statement is linked to the:

A)Retained earnings
B)Cash and cash equivalents
C)Income statement
D)Long-term assets

Question 21

What is needed to build the pro forma balance sheet once the pre-LBO model is finished?

A)CIM
B)Proxy statement
C)Sources and uses of funds
D)10-K

Question 22

In a traditional LBO analysis, it is common practice to assume an exit multiple that is:

A)Below the entry multiple
B)Above the entry multiple
C)Equal to the entry multiple
D)Both A and C

Question 23

Which of the following provides an overview of the LBO analysis in a user-friendly format?

A)CIM
B)Transaction summary
C)Sensitivity analysis
D)Debt schedule

Question 24

When building a pre-LBO model, a banker builds the cash flow statement through what point?

A)Operating activities
B)Financing activities
C)Investing activities
D)The cash flow statement is not built in the pre-LBO model

Question 25

What is a key credit risk management concern for underwriters in an LBO?

A)Ability to pay annual interest expense
B)Ability to repay a substantial portion of bank debt
C)Optimal financing structure
D)All of the above

Question 26

Calculate net interest expense given the following information.

Details:
Total interest expense: $25.0m
Interest income: $2.0m
Non-cash deferred financing fees: $3.0m

A)$23.0m
B)$20.0m
C)$26.0m
D)$30.0m

Question 27

Given the following information, calculate the cash that will flow to the balance sheet, assuming a 100% cash flow sweep.

Details:
Free Cash Flow: $65.0m
TLB amortization: $5.0m
Optional debt repayment: $70.0m

A)$60.0m
B)$70.0m
C)$65.0m
D)$0.0

Question 28

Which part of the pro forma balance sheet is affected by the debt schedule?

A)Long-term liabilities
B)PP&E
C)Short-term assets
D)Goodwill